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In the land of the blind . . .

2011 April 18
by Roger Valdez


< Improvements in assessed valuation don't mean more property tax revenue in Washington >

In the closing days of last year I made an investment of time that has had a dubious payout. You see, I read the entire Property Tax Levy Manual (careful it’s a huge file). Now I have arcane information about Washington State property tax rattling around my head. So when I read Dan’s recent Citytank post about property tax and Peter Katz’ analysis in Florida I couldn’t help but raise my hand in the back of the class and go “ooh, ooh!.” A little knowledge is a dangerous thing. Or, as wise sage once told me, “in the land of the blind, the one eyed man is king.”

Katz’ argument that developing mixed-use instead of shopping malls will improve the tax base isn’t true in Washington State. Why is that? Hint: it’s the same reason Tax Increment Financing doesn’t work in Washington State either.

Washington state and local government collects its property taxes in the reverse order of the way we usually think of property tax collection. Usually we think of our house or farm as having a set tax rate. Say my rate is 1 percent. If my property is worth $100,000 I pay $1000 in property taxes each year. If the value of my property goes up, I pay more tax. A doubling in my property value from $100,000 to $200,000 means the local government collecting that 1 percent levy on my property will see $2000 next year instead of $1000. This system is called a “rate based system.”

That doesn’t happen in Washington because our constitution requires uniform taxation. The way we’ve chosen to deal with that requirement is to start with a tax district budget first, then assess a levy on all the value in the district uniformly. If a taxing district has an annual budget of $100,000,000 they can levy taxes on all the property value in the district uniformly. That means a guy with a house that is worth $500,000 pays more than I do if my house is worth $100,000 but we still pay the same amount per $1000 of assessed value. From year to year local taxing districts can increase their levy by only 1 percent per year. But the tax on my property goes up or down based not on its increase in value but the budget of the local taxing district.

What also affects my bill is the increase and decrease of the assessed value of all the property in the taxing district. Strangely enough, if the value goes up I could pay less in property taxes because there is more value to tax, and if the assessed value drops my taxes might actually go up for the opposite reason.

No matter how much value I add to a piece of property it doesn’t affect how much taxes flow into local government coffers. Remember, those can only increase 1 percent from year to year. And local taxing districts can’t capture the increases in property value from mixed use, shopping malls, or even public infrastructure improvements.

This is a shame. Because it takes away one of the best arguments smart growth folks have to push for different development patterns: money! In Washington some local officials might not understand the property tax system (remember the land of the blind?), but the argument won’t make it past smart staff at the state Department of Revenue. This uniformity issue in Washington’s constitution also stymies Tax Increment Financing too, making it impossible to capture the increases in private property value from public improvements.

It is important for policy makers to understand how tax revenue varies by land use. But for Washington State to take property tax revenue advantages of the benefits of good planning and development, and Tax Increment Financing, we’re going to need to update our constitution for the 21st century.


Roger Valdez is currently reading his way through Seattle’s Land Use Code, most recently getting through SMC 23.49 the chapter covering downtown zoning.